Improved upstream performance, asset disposals boost profits at Shell

A better performance at its upstream division, together with continued asset disposals, buoyed Royal Dutch Shell's bottom line during the second quarter of 2017.

The oil major also further reduced its indebtedness while keeping its quarterly dividend payout steady at 47 cents per share.

Shell reported a 31% increase in net income for the latest three-month stretch and in comparison to a year ago, to reach $1.55bn.

On a current-cost-of-supplies basis and excluding identified items, profits were up from $1.05bn in the year-ago period to $3.6bn.

The company's top-line jumped from $58.42bn one year ago to $72.13bn, but was little changed from $71.79bn in the previous quarter.

Commenting on the company's results and outlook, chief Ben van Beurden said that given the current price environment and developmemts in the sector, his outfit would continue to focus on four fronts: capital efficiency, costs, new project delivery, and divestments.

The integrated gas division saw net income rise from $868m to $1169m, while in 'upstream' Shell moved back into the black, turning a profit of $339m versus red ink of -$1.33bn one year ago.

Downstream was also more profitable, with net income rising from $1.82bn to $2.53bn.

Free cash flow was significantly improved, rising from $5.2bn during the first quarter of 2017 to $12.2bn for the three months to June.

In its second quarter, Shell disposed of $9,472m-worth of assets, helping it to lower its level of gearing from 27.2% to 25.3%.

On a current cost of supplies basis, the company's earnings per share grew from 3 cents one year ago to 23 cents.

With a view to the third quarter, Shell guided towards earnings, excluding identified items and movements in currency and interest markets, to come in at between $350m to $450m, alongside a net charge of around $1.4bn to $1.6bn for the full-year.

Integrated gas production volumes were seen benefiting by some 60,000 barrels of oil equivalent per day linked to the start-up of Gorgon, but partially offset by increased maintenance at the LNG plants.

Upstream earnings would also benefit from a 90,000 boed/d increase in restored production in Nigeria, but security conditions "remained sensitive" the company said in a statement.

However, divestments would subtract 190,000 boe/d, alongside -40,000 boe/d from lower output at NAM in the Netherlands and -30,000 boe/d due to maintenance.

Reacting to the results, Nicholas Hyett, senior equity analyst at Hargreaves Lansdown, said: "Achieving these results at an oil price which is still sub $50 a barrel, while also carrying out and integrating an major acquisition is undeniably impressive. Although admittedly, more of the profit is coming from the downstream business rather than actually pumping oil.

"If we have a slight concern it’s that capital expenditure remains at rock bottom. The group is performing well for now, but at some point it will have to fork out to replenish the oil it’s currently pumping out or selling."

As of 1205 BST 'B' shares in Royal Dutch Shell were 1.05% higher to 2,119p.